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Article updated: 5/19/2013 9:44 AM

Mobile app loyalty programs gain ground

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Loyalty programs are moving out of wallets and into smartphones as a new generation of applications seeks to reward consumers for shopping, watching television or snapping photos.

Walt Disney Co. and Target have signed up with Shopkick, which created a mobile app that gives points to shoppers for entering stores or buying products. Viggle's software offers points for "check-ins" while watching TV shows, while Kapture Life members can earn rewards by shooting and sharing pictures of food or products.

With smartphone-based loyalty apps, marketers are able to track consumer behavior while finding more ways to entice shoppers to share information. Mobile location-based promotions are projected in 2016 to capture 64 percent of $622.4 million in local digital-marketing spending, from 33 percent of $174.5 million last year, according to Borrell Associates Inc.

"Everything grows as mobile grows," said Kip Cassino, director of research at Borrell Associates in Williamsburg, Va. "By 2016, the tools will be perfected and it'll take off."

Unlike typical card-based loyalty programs, many mobile- reward apps aren't tied to a single merchant or company, and they often provide cash or gifts instead of in-store discounts.

With more than 5 million users, Palo Alto, Calif.-based Shopkick has also signed up American Eagle Outfitters, Best Buy and Macy's.

For retailers, mobile-reward programs offer a way to combat so-called showrooming, which happens when consumers check out merchandise in stores then search for better prices at online retailers such as Amazon.com or eBay.

By 2016, smartphones will influence as much as 21 percent, or $752 billion, of all U.S. retail-purchasing decisions in stores, according to Deloitte, up from 5.1 percent, or $159 billion, of all U.S. store sales last year, Deloitte said.

"The only way to fight showrooming is to fight fire with fire," said Michael Boland, an analyst at researcher BIA/Kelsey in Chantilly, Va.

The technology behind mobile-loyalty apps enhances their effectiveness, Boland said. Shopkick's software can track when buyers enter stores. Using satellite positioning, smartphones can also detect, for other loyalty applications, consumers' proximity to a particular store and alert them to sales or special promotions.

Viggle analyzes sounds to identify what TV shows members are watching, so that they can "check in" to a program and collect points. Viggle, based in New York, began running commercials in March and has gained more than two million registered users.

Frank Goraj, 29, of Lexington, S.C., has won a trip to the Super Bowl and earned enough Viggle award points for a $175 Best Buy gift card.

"If we run a trailer for a show, and push them a reminder, 46 percent will watch the show," Greg Consiglio, Viggle's president, said in an interview.

TV network Fox Broadcasting Co. is using Viggle's app to attract viewers to new shows.

"The goal is to try to keep people watching Fox," Hardie Tankersley, a vice president at Fox, said in an interview. "We know that the majority of people watching television have some sort of a mobile device in front of them. If we can convert these users into our viewers, that's what drives our business."

Consumers spent more time on average in Shopkick's app than they did in similar programs by Amazon, eBay and daily deals provider Groupon, according a June 2012 study by Nielsen Holdings NV, which ranked the top 10 shopping apps by unique users.

"We are producing the same behavioral change as a 30 to 50 percent discount would," Cyriac Roeding, Shopkick's chief executive officer, said in an interview. Consumers typically earn 30 cents to 80 cents for visiting a store, and Shopkick earns a small commission, he said.

Shopkick users buy twice as much at American Eagle Outfitters as other shoppers, according to Jim Thompson, a vice president at the Pittsburgh-based clothing retailer.

"American Eagle is looking to move away from pure promotions and couponing, to user engagement," Thompson said.

Kapture users who take photos of products and share them with friends via social networks such as Facebook or Twitter can earn products at stores. The company is looking to expand beyond New York.

Competitors are beginning to take notice. Groupon, which offers daily discounts at local shops, businesses and restaurants, said its subscription model remains an effective way to generate sales.

"Research shows that consumers spend beyond the value of the Groupon and often come back and pay full price," Julie Mossler, a spokeswoman for Groupon, wrote in an email. "Most mobile-reward programs haven't yet proven to be as consistent or effective."

While Viggle, Shopkick and Kapture are competing with Groupon and others for businesses' marketing dollars, they're also challenging traditional loyalty programs.

At least a third of $48 billion in consumer-loyalty rewards earned every year in the U.S. are never redeemed, Colloquy, a Cincinnati-based marketing researcher, said in 2011.

In 2012, only 48 percent of U.S. adults said loyalty membership saved them a lot of money, according to Forrester Research. Just 22 percent of consumers thought such programs influenced how much they spent.

"It's a pretty low number," Emily Collins, an analyst at Forrester, said in an interview. While buyers enrolled in loyalty programs have come to anticipate deep discounts, retailers are wary of expanding such initiatives because of their impact on profits and questions about how well they work, she said.

"What brands are realizing is, discounts aren't effective in creating long-term loyalty," Collins said.

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